In today's NST, the prime minister said that the impressive economic performance of late is not artificial. Abdullah said the government did not artificially push up the Kuala Lumpur Composite Index and that the increase was gradual and not sudden. However, the prime minister did not mention why he was so sure that the KLCI will hit 1350 soon. Bearing that his statement is likely to fuel retail investors' interest in the stock market, the prime minister should take note that his statement is akin to an 'artificial' intervention of the KLCI.
On the total investment, he said both foreign and domestic investments had increased to give a combined figure of more than RM42 billion, the highest ever recorded. I checked with several financial consultants and got their feedback on the figures. They told me that the SKS refinery (owned by Syed Mokhtar - and his controversial Iranian connection) and two other petrochemical plants to be set up by Petronas accounted to almost RM15 billion of the RM42 billion (the earlier reported figure was RM46 billion).
According to them, it is safe to conclude that about 70 percent of the total approved investments will be invested. Hence, the projected total investment is RM29.4 billion. Minus the total investment with RM15 billion, we are seeing a net investment of RM14.4 billion. The RM15 billion investment in the oil and gas sector in 2006 is an exceptional one. Of the RM14.4 billion, about 60 percent comes from the E&E sector. This sector has posted an impressive RM281 billion out of the RM588 billion of total exports. Hence, RM5.76 billion of investment comes from other industries.
Another financial consultant told me that there has been a large inflow of money from the Middle East countries into our property market. From my conversation with them, a number of commercial complexes have been bought up by these funds. Although I do not have a precise figure of the inflow, it is obvious that when we start to itemise the total investments approved and actually invested the outlook may be completely different.
Yesterday, it was reported in both the Sun and NST that car sales for the corresponding period of January 2007 has dropped by 15 percent. Massive drop is recorded at the commercial vehicle sector. MAA attributed the drop to sluggish consumer sentiment.
The prime minister said that the strengthening ringgit is a good news. Two factors contributed to the rise in RM. First, RM is still considered undervalued and its appreciation would have been much earlier if not for the intervention of BNM for fear that an expensive RM may hurt exports. Second, foreign funds coming into the Bursa Malaysia obviously would need to convert their currency into RM. Alan Greespan called the euphoria of some stock markets an 'irrational exuberance' (thanks to Elanor who corrected me) which are seldom supported by real fundamentals.
A prominent retired civil servant I spoke to told me that the economy structure still remains the same. He wondered what the government has done in the short span of less than 3 months to merit a call that the economy has turned around.
Another ex-CEO and now a corporate coach told me that his team of CEOs especially those from the public listed companies are not focusing on the local economy. Most of them are shifting their resources overseas, which is natural, and looking for better yield and prospects outside the country.
Give it another 6 months and by the second half of 2007, the verdict will be out if the economy has really turned around.
If yes, the government should encourage employers to increase the salary of their workers as a gesture of their appreciation.